Euro ABS spreads hold tight; market players wonder for how long?

While spreads for The Permanent Financing No. 4 reached the tightest pricing levels among any U.K. MBS seen this year, how long the tightening bias will continue is a matter of speculation. Some market players are hoping that with this deal represents a plateau in spread valuations while other market reports indicate that there is still more room to tighten before the trend reverses.

Trading cooled last week when compared to the volume recorded in the prior week, with little added to the pipeline. Only 3.5 billion (US$4.29 billion) of new paper marketed throughout the week, according to market estimates. "Secondary trading reflected the market's state of mind in recent days - stalemate," said analysts at the Royal Bank of Scotland. "Thoughts are that spreads are too tight, but pent-up demand for assets keeps participants returning."

"However, markets are finding that paying premiums in secondary markets is a difficult proposition. This lackluster demand for seasoned, premium assets solidifies our view that a pause in spread tightening is coming," they added.

Nonetheless, transactions continue coming in at the tight end of price guidance. London Mortgage Co. upsized its RMBS, Marble Arch Residential Securities 2, to GBP300 million (US$540 million) from GBP274 million (US$493 million) and still priced the deal at the tight end of talk. The 2.5-year triple-A rated notes priced at 32 basis points over Libor for both the sterling and euro pieces. The notes were offered under a 3.8-year euro-denominated single-A and triple-B piece that priced at 120 basis points and 230 basis points over Euribor, respectively. The provisional pool consisted of first lien mortgages with a 75.3% weighted average LTV and six months of seasoning.

Outside of the mortgage sector, Etruria Leasing and ACI Leasing came to market with its 207.6 million (US$254.7 million) lease-backed deal dubbed Mecenate Leasing. Dealers priced the two classes of triple-A notes at 27 basis points over Euribor for the 1.7- year tranche and 28 basis points for the 2.3-year tranche. The portfolio backing the notes is mixed, split into 46.4% real estate, 28.8% vehicles and 24.8% equipment leases.

http://www.asreport.com

Subscribe Now

Access to a full range of industry content, analysis and expert commentary.